#-ad_banner-#Right about now, the phrase “3-D printing” is the source of much eye-rolling. There was so much hype built around companies like 3-D Systems Corp. (NYSE: DDD) and Stratasys Ltd. (Nasdaq: SSYS), but impossibly high hopes for such firms were bound to be dashed. Each stock now sells for a fraction of their all-time high, and they have a long road ahead as they try to rebuild investor confidence.

Still, it’s important to keep your eyes on the prize in this industry: 3-D printing remains as one of the most exciting new developments in the global industrial landscape. For investors, it’s a matter of finding the right horse to ride.

Despite all the current gloom, 3-D printing industry revenues are slated to rise more than 50% this year, to more than $5 billion. Research firm Canalys predicts that the market will grow in excess of 40% annually through 2019 as well. Surging demand for 3-D hardware and software is coming from best-of-breed industrial firms such as The Boeing Co. (NYSE: BA), BMW and General Electric Co. (NYSE: GE).

The industry’s two biggest players made a classic mistake. They tried to develop a soup-to-nuts set of product and service offerings to target the mass market, which was bound to have pricing pressures. (I highlighted 3-D Systems’ perilous growth-at-any-cost strategy back in 2013.)

Netherlands-based Materialise NV (Nasdaq: MTLS) was wise enough to eschew such a swing-for-the-fences strategy and instead has remained tightly focused on the high end of the market. The company is making a big push into software, which now accounts for nearly 40% of sales, up from 30% a year ago. (As I’ll explain in a moment, the transition should have a big impact on profit margins.) The company is seeing strong demand from product development engineers in a range of industries, and management sees especially robust growth opportunities in the medical device space.

As is the case with 3D Systems and Stratasys, Materialise fell sharply out of favor in late 2014 and early 2015. Unlike those firms, it is now starting to get a more positive look from investors these days, and a rebound is now underway.

Why are shares rebounding while 3-D printing peers are hitting fresh lows? “Materialise posted very good Q1 results and maintained its 2015 outlook, a significant positive given weak demand noted by printer OEMs. MTLS is still the best way to play 3D printing, in our view,” write analysts at Pacific Crest Securities.

To be sure, Materialise isn’t promising investors that it will deliver scorching growth, as its larger rivals did. Those larger firms made a series of acquisitions to pump up sales, but often paid too much in terms of cash and shares. Materialize, instead, is pursuing steady 15%-to-25% organic growth. The company had around $66 million in revenue in 2012, which is expected to exceed $120 million by next year.

Yet it’s the quality of that growth that is crucial to understand. A focus on software invariably leads to rising profit margins as revenues expand. The company’s gross margins have risen from around 40% in 2012 to a recent 58%, and earnings before income, taxes, depreciation and amortization (EBITDA) margins should approach 20% in a few years, according to management.

For now, investors may remain concerned that Materialise has not generated much by way of profits. That’s due in large part to the fact that the company has been sharply boosting spending on R&D and expanding its sales force at a rapid pace. Much of the R&D efforts are focused on metal printing and further development of the company’s software platform.

This is part of a “strategy that we laid out as part of the IPO process and that is a strategy of investing heavily in the near-term in both sales and marketing as well as in product development, with a view to accelerating our growth in the mid- to long-term,” noted Chairman Peter Leys on the company’s Q4 conference call.

In discussing the June 2014 initial public offering (IPO), CEO Wilfried Vancraen noted that “our objective in raising capital was to get resources to aggressively invest in 2014 and 2015.”

It’s hard to overstate the impact of that statement. So many companies decide to aggressively spend their IPO money to cement their industry positioning. The company’s sales force, for example, is now 40% larger than it was a year ago. (Most of those new hires joined the company near the end of 2014 and are only now likely gaining traction with new clients).

But many investors soon grow frustrated with such an approach, questioning why profits aren’t growing faster than sales. Frankly, that’s the perfect set-up I look for — especially if a company faces a still-robust long-term growth opportunity. And 3-D printing, despite the recent boom-and-bust of some high-profile stocks, is one of the most appealing growth niches in the industrial landscape.

Management has identified a payoff for the current heavy slate of spending on the sales force and R&D. The spending will “help us to shift the total company revenue mix in favor of software sales. As a result, in the next two years gross margins will go up and operating expenses as a percentage of sales will start to come down,” added CEO Vancraen.

Risks To Consider: The 3-D industry is becoming highly competitive, and as more companies develop a software focus, Materialise may see longer sales cycles.

Action To Take –> The proof, as they say, will be in the pudding. Materialise is promising steady sales growth, coupled with an expansion in gross margins and a moderation in expense growth. If the company can deliver that formula over the next few quarters, look for this stock to move into the low teens. Over the next year, when investors no longer dismiss 3-D stocks in general, this stock has a clear shot of re-visiting its 52-week high in the mid-teens, which represents roughly 60% upside. Shares have begun to show newfound momentum, but considerable upside remains.

Oftentimes the little ideas are the big game changers — something like printing metal objects. My colleague Andy Obermueller devotes his time to identifying game-changing trends and the companies that should benefit from this. This has led readers to investments that went on to gain triple-digits.

More recently, Andy has been talking about the profit potential for Apple’s newest technology Apple Pay — and more importantly the company’s key suppliers. If you haven’t heard about this opportunity yet, then I urge you to check out his comprehensive report on how to profit from this technology, by clicking here.